Offshore investors cashed out of Chinese stocks at a record pace on Tuesday, bagging profits after the market’s world-beating rally.
Funds based outside the mainland sold a net Rmb17.4bn ($2.6bn) through trading link-ups between Hong Kong and the two main bourses in Shanghai and Shenzhen, according to Financial Times calculations based on Bloomberg data.
The benchmark CSI 300 stock index dropped as much as 2.5 per cent on Tuesday, before closing the session down 1 per cent.
Last week the index of large and liquid Chinese equities notched its best run in five years, as international investors and the country’s momentum-driven retail investors rushed in.
China’s so-called A-share market has risen more than 17 per cent this year, even as bourses elsewhere have struggled to break even. The S&P 500, for example, is down 2.3 per cent as surging coronavirus cases in major US states threaten to undermine the country’s economic reopening.
Andy Maynard, a Hong Kong-based trader at China Renaissance, an investment bank, said Tuesday’s withdrawals had the hallmark of “profit-taking as opposed to capitulating”, adding that “even with this pullback today and with this record outflow, the market’s still performing incredibly well”.
The scale of China’s recent stock rally has drawn comparisons with a spike in 2015, when a bubble burst after prices doubled in a year. Margin finance, where Chinese brokers provide loans to investors to buy equities, has reached its highest levels in five years.
Tuesday’s outflows follow a sustained period in which money has poured in to the mainland via Hong Kong. Chen Long, a Beijing-based analyst at Plenum, noted that net inflows via the six-year-old “stock connect” programme came to $19.2bn in the second quarter, the second-highest quarterly figure on record.
Second-quarter gross domestic product data for China, due out on Thursday, is expected to show a return to growth after a huge contraction earlier in the year.
“Data started rebounding” after the first quarter, said Mr Chen, who expects to see “continuous recovery [in China]”.
Last week’s sharp move higher in stocks initially appeared to be bolstered by the government, with the state-run China Securities Journal promoting the virtues of a “healthy bull market” on Monday.
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But signs of state support became more mixed, with the same publication later in the week pointing to the “tragic lesson” of volatility in the 2015 crash. Elsewhere, China’s securities regulator cracked down on hundreds of illegal online platforms offering margin finance to investors.
Tuesday’s fall for Chinese stocks also followed another escalation in US-China tensions.
The US vowed on Monday to adopt a tougher stance on China’s territorial claims in the South China Sea, while pledging to maintain pressure over alleged human rights abuses. The moves from Washington came shortly after Beijing placed sanctions on several US senators for their roles in targeting Chinese officials with punitive measures over the mass detention of Muslim Uighurs in Xinjiang province.